Matai and Australian Securities and Investments Commission - [2024] AATA 520

Matai and Australian Securities and Investments Commission [2024] AATA 520 (21 March 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Number:2022/10263
Re:Jeneve Nirosh Matai
APPLICANT

Australian Securities and Investments CommissionAnd
RESPONDENT

Tribunal:Deputy President I R Molloy
Date:21 March 2024
Place:Brisbane

DECISION
The decision under review is affirmed.
...............................[SGD].........................................
Deputy President I R Molloy
CATCHWORDS
FINANCIAL SERVICES – banning order – where Applicant had failed to comply with financial services laws and not adequately trained to provide financial advice – where conduct related to Applicant’s provision of personal financial advice – where conduct had resulted in loss to clients – whether banning period of four years appropriate – decision affirmed
LEGISLATION
Corporations Act 2001 (Cth)
CASES
ASIC v Adler [2002] NSWSC 483
ASIC v McCormack [2017] FCA 672
Re Howarth and ASIC [2008] AATA 278
Rich v ASIC (2004) 220 CLR 129
SECONDARY MATERIALS
Regulatory Guide 98: ASIC’s powers to suspend, cancel and vary AFS licences and make banning orders
REASONS FOR DECISION
Deputy President I R Molloy
21 March 2024
BACKGROUND

The Applicant, Mr Matai, applies for review of a decision made by a Delegate of the Respondent, the Australian Securities and Investments Commission (ASIC), dated 8 December 2022 under s 920A(1) of the Corporations Act 2001 (Cth) (the Corporations Act), prohibiting him from providing any financial services, performing one or more functions as an officer of an entity that carries on a financial services business, or controlling an entity that carries on a financial services business, for a period of four years from the date of the decision (the Banning Order).[1]
[1] Exhibit Tr1, T-2 (p. 69).
Section 920A(1) of the Act specifies the grounds on which a banning order may be made. The Delegate found that three separate grounds existed:
(a)Mr Matai had not complied with one or more financial services laws (namely, ss 952E, 961B(1), 961G, and 961J of the Corporations Act) when giving personal financial product advice to clients: s 920A(1)(e);
(b)there was reason to believe that Mr Matai was not adequately trained, or was not competent, to provide a financial service or financial services: s 920A(1)(da); and
(c)there was reason to believe that Mr Matai was likely to contravene a financial services law in the future: s 920A(1)(f).[2]
[2] Exhibit Tr1, Statement of Reasons: T-2 (p. 70).
It is sufficient, as ASIC submits, that just one of the prerequisites in s 920A(1) of the Corporations Act is satisfied so as to enliven the discretion to impose a banning order.
Mr Matai does not dispute:
(a)the Delegate’s findings that he contravened the various financial services laws in the manner set out in the Delegate’s Statement of Reasons;
(b)that ASIC’s power to make a banning order under s 920A(1) was enlivened; or
(c)the scope of the Banning Order (as opposed to its duration).
As to its duration, which is the primary issue before me, Mr Matai contends, including in his position paper filed on 15 June 2023, that the Banning Order should be for a period of six months, or alternatively, as he submitted during the hearing, for some other lesser period than four years.
Although the facts and circumstances which led to the Delegate making the Banning Order are not in dispute, it is necessary to refer to them in some little detail. In doing so, I have drawn substantially upon ASIC’s Statement of Facts, Issues and Contentions filed on 22 January 2024 which, in this respect, is not disputed, and I am satisfied is correct.
From January 2014 until the making of the Banning Order, Mr Matai worked as a registered financial adviser for, or acted as an authorised representative of, various Australian Financial Services Licence (AFSL) holders.
From July 2019 until at least August 2022, Mr Matai was an authorised representative under the AFSL held by National Advice Solutions Pty Ltd (NAS), and a financial adviser for one of NAS’s corporate authorised representatives, Ezi Advice Solutions Pty Ltd (Ezi).
The conduct which gave rise to the Banning Order concerned Ezi’s use of what was described as a ‘Layered Advice Strategy’ for providing personal financial advice to clients. Mr Matai had no role in developing or introducing the Layered Advice Strategy at Ezi, but he did act in accordance with it in his provision of financial services.
Mr Matai held the role of Head of Advice for Ezi’s superannuation team between around mid-to-late 2019 and November 2021. In that role, he provided assistance to Ezi’s executive team with the running of the business, and acted as the point of contact between advisers and the executive team. He also himself provided personal advice to clients.
In addition to his role as Head of Advice, Mr Matai was an Assistant Training Manager for Ezi between around January 2020 and October 2021, and a member of Ezi’s Investment Committee between February and December 2021. As Assistant Training Manager, Mr Matai assisted with the training of new staff in relation to largely administrative matters. As a member of Ezi’s Investment Committee, Mr Matai participated in quarterly meetings to discuss the business’s current investment strategy and potential new investments.
A key element of the Layered Advice Strategy was that the advice was separated into topics. Typically, a client was initially provided with a statement of advice that addressed only superannuation, and then only after that was the client given a second, separate, statement of advice that addressed insurance.
The “fact find” that was completed for the purpose of providing each statement of advice was limited to just those facts considered “necessary” to each discrete topic. This meant that in providing advice, say on superannuation, the client’s financial position as a whole was not considered.
Insurance is not uncommonly provided through a superannuation fund. Under the Layered Advice Strategy, where the initial advice was to change superannuation funds, clients were simultaneously advised to leave a percentage of funds in their existing account so as to keep it “open”, and not jeopardise an existing insurance cover. This led to at least some duplication of fees.
The Delegate found that Mr Matai had not complied with financial services laws when he provided personal financial advice in statements of advice to four particular retail clients. All four clients received the same, or substantially the same, five recommendations in Mr Matai’s statements of advice:
(a)establish a new superannuation fund;
(b)leave a small amount in the existing superannuation account and roll over the balance into the new account;
(c)continue directing employer superannuation contributions into the existing account until an insurance review was completed;
(d)implement a death benefit nomination; and
(e)participate in Ezi’s ongoing service plan (funded through the recommended superannuation product).
The ASIC Delegate found, as is the case, that “[t]he reasons given for the recommendations were minimal, generic and were the same across all four clients, right down to the typographical errors”.[3] Further, as the Delegate also found, “[n]one of [the] reasons were specific to the clients or their relevant circumstances, and some of the reasons didn’t even apply to any of the clients…”.[4]
[3] Exhibit Tr1, T-2 (p. 71).
[4] Ibid.
The recommendation that clients keep a portion of the balance in, and direct employer contributions to, the existing superannuation account in order to maintain their insurance cover was always made, regardless of the client’s circumstances. In the case of one of the four clients, however, this recommendation was included, even though this particular client had already received an insurance statement of advice.
In relation to the information collected by Mr Matai, all four clients are recorded as wanting to retire at 67 years, but without any information as to why or how that age was chosen. As the Delegate found, Mr Matai’s “fact finds” were hopelessly deficient:
[86] There was no information in any of the superannuation fact finds pertaining to the client’s health, if they had any anticipated expenses, if they owned their own home had a mortgage, or if they rented, how much they spent on necessities each week, how much they spent on discretionary items, how old their dependents were and how long the client expected to be providing for them, if they had savings in the bank or other assets, if they owned a car or had any household goods. All of this information is relevant to the lifestyle they would wish to maintain in retirement, and therefore their superannuation goals, as well as consideration of if they can afford to be making contributions to super, and their insurance needs.[5]
[5] Ibid, at [83]-[86].
As I have said, the statements of advice for each of the four clients, running to some 17 pages, were substantially the same. The projected outcomes were also substantially the same. The projections were calculated on the basis that all employer superannuation contributions were being made into the new superannuation account that the advice recommended each client open and that the whole of the client’s balance would be transferred to the new account. This was inconsistent with the recommendation in the statements of advice that approximately one third of each client’s balance be left in their existing account and further employer superannuation contributions be directed into that account until a second statement of advice about insurance was received and implemented. Yet, as I have said, in one case the insurance advice was received in advance of the superannuation advice, in two cases it was not received until many months later, and in the fourth case it was apparently not received at all.
It was recommended that the clients sign up for ongoing annual advice. There was no sufficient explanation of what this entailed. Mr Matai said the clients were only being asked to subscribe for the first year, and each client’s consent was required to continue with the ongoing advice. This was not clear in the statements of advice and it is questionable whether the clients knew or were ever told they had this choice. But whether it was for one year or more, the ongoing advice did not appear to provide any benefit to the clients, at least none that was properly explained, and certainly nothing that would justify an annual charge ranging from about $1,100.00 to $1,800.00. This was on top of what the clients were charged for the superannuation statements of advice, $3,300.00.
There is no need to go into any more detail concerning the statements of advice Mr Matai provided. It is sufficient to say that, based on my own review of the evidence, I agree with the findings of the Delegate, which Mr Matai also accepts, that he gave “his clients deficient statements of advice that contained advice that it was not reasonable to conclude was appropriate for them, in circumstances where he failed to prefer the interests of the client over those of his employer, and where he failed to act in the best interest of the client when preparing the advice”.[6] In so doing, Mr Matai contravened ss 952E, 961B(1), 961G, and 961J of the Corporations Act.
[6] Exhibit Tr1, T-2 (p. 71).
As ASIC submits, Mr Matai’s breaches were not merely technical in nature. Further, they resulted in losses. Each of the clients was charged sizeable fees, including ongoing fees, paid from their superannuation funds, in exchange for minimal (if any) benefit. They were burdened with two sets of fees, in respect of their existing and new superannuation accounts, even though, as Mr Matai says, ongoing fees in respect of the existing accounts might have been minimal. There was also the loss suffered by each client in foregoing the benefits that should have resulted from receiving sound personal advice.
ASIC accepts that Mr Matai had no role in developing or introducing the Layered Advice Strategy at Ezi, and that he was instructed to follow the strategy by his superiors. But the obligations which Mr Matai breached were personal in nature and applied to him directly, in his capacity as a financial adviser. Mr Matai says he raised concerns about the provision of the Layered Advice Strategy in conversations with his superiors. If this did occur, of which there is no corroborative evidence, it merely shows that Mr Matai was aware that there were deficiencies, but that did not stop him implementing the strategy. Before me he described the practice as “horrible” and says it should not have occurred.
The Delegate also found that Mr Matai was not adequately trained and was not competent to provide financial services. I have come to the same conclusion. It is a finding which, in my view, follows almost inevitably from the contraventions I have outlined. There is no evidence that Mr Matai has undertaken any further formal training or courses to the time of this hearing. I have therefore, as I said, come to the same conclusion as the Delegate.
The Delegate also found there was reason to believe Mr Matai was likely to breach a financial services law in the future. ASIC submitted I should come to the same conclusion as the Delegate. The risk obviously exists absent adequate training. But before me Mr Matai was adamant that he intended to undergo further training, that he would like to work in the financial services sector again, he fully understood and accepted the adverse findings against him, and that he does now appreciate the obligations imposed upon him personally. It is to be hoped that during the course of a banning order the likelihood of future breaches of a financial services law will recede. I do not question the Delegate’s decision at the time, but I am not satisfied that Mr Matai is currently likely to breach a financial services law in the future. Of course it is not the case that a banning order should only be imposed where the evidence discloses the conduct complained of or similar conduct is likely to occur in the future.[7]
[7] ASIC v McCormack [2017] FCA 672, [34]-[36] & [38].
This is not a case where anything other than a banning order should be imposed. Mr Matai accepts that. The question is what should be the duration of the ban.
ASIC has published guidance to the industry and to ASIC’s decision-makers in Regulatory Guide 98: ASIC’s powers to suspend, cancel and vary AFS licences and make banning orders (RG 98). Table 2 of RG 98 sets out the key factors ASIC will consider in deciding whether to make a banning order. Table 3 of RG 98 provides examples of conduct relating to specific periods of banning. I accept ASIC’s submission that the Applicant’s conduct, by reference to the guidelines, attracts a banning period of three to ten years. The Guide of course is just that, a useful guide, which no doubt promotes consistency.
RG 98 identifies three considerations relevant to the assessment of the expected level of public benefit which a banning order might bring about:
(a)the protective effect for investors and consumers;
(b)the reinforcement of the integrity and reputation of the financial services industry; and
(c)whether the case is likely to help participants in financial markets to better understand their obligations and therefore promote compliance.
As ASIC submits, these considerations reflect both the express purposes of the legislation, as well as the issues of specific and general deterrence identified in ASIC v Adler as “fundamental in determining whether to impose a disqualification order and if so for what period”.[8]
[8] [2002] NSWSC 483, at [56]; and see also Rich v ASIC (2004) 220 CLR 129, at [42]-[43] (see also at [48]-[49]); Re Howarth and ASIC [2008] AATA 278 at [201].
Mr Matai’s contraventions of the Corporations Act were serious, and they led to losses. I have taken into account the mitigating factors. I am conscious of what Mr Matai told me about the adverse consequences the banning order and its publicity have had on himself and his family. I have taken into account the statements he has filed supporting him from Mr Palacio, Ms Serjeant and Ms Glasby.
Weighing what I think are all the relevant considerations, and having regard to RG 98, I have concluded that a banning order of four years, the same as imposed by the Delegate, is the correct and preferable decision. Accordingly, the Delegate’s decision will be affirmed.
I certify that the preceding 31 (thirty-one) paragraphs are a true copy of the reasons for the decision herein of Deputy President I R Molloy
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Associate
Dated: 21 March 2024
Date of hearing:  15 March 2024
Applicant:  Self-represented
Counsel for Respondent:          Ms Sarida Derrington
Solicitors for Respondent:        Ms Sarah Maneckshana
  Mr Robert Chiarella